Financial Reporting II Chapter 14
constant
allocating the discount or premium equally over the life of the bonds by the straight line method results in a __ dollar amount of interest each period
detachable stock purchase warrants
another less common way to sweeten a bond issue is to include these; gives the investor an option to purchase a stated number of shares of common s tock at a specified option price
expense
any additional consideration provided to induce conversion of convertible debt is recorded as an __ of the period
gain or loss
any difference between the outstanding debt and the amount paid to retire that debt represents a:
debt
because of the inseparability of their debt and equity features, the entire issue price of convertible bonds is recorded as __, as if they are nonconvertible bonds
premium
bonds are sold at a __ if the effective rate is less than the stated rate
discount
bonds are sold at a __ if the stated rate is less than the effective rate
debenture bond
most corporate bonds; secured only by the full faith and credit of the issuing corporation, not backed by specific assets; holders usually have the same standing as general creditors
same
notes are accounted for in the __ way as bonds
operating
paying or receiving interest is a(n) __ activity
market rate
the interest rate in the note is likely to be equal to the:
two different securities
the issue price of bonds with detachable warrants is allocated between: on the basis of their fair values
bonds
the most common form of corporate debt
unaffected
the premium is __ by debt issuance costs because they are recorded in a separate account
bond indenture
the specific promises made to bondholders are described in this document
underwriting fee
the spread between the price the underwriter pays and the resale price; investment banks "underwrite" by committing to purchase bonds at a set price and absorb any risks accociated with a new issue
convertible bonds
these are retired as a consequence of bondholders choosing to convert them into shares of stock
convertible bonds
these can be exchanged for shares of stock at the option of the bondholder
serial bonds
these provide a more structured way to retire bonds on a piecemeal basis; retired in installments during all or part of the life of the issue
debt issue costs
these, such as legal and accounting fees and printing costs, are recorded separately and are amortized over the term of the related debt; debt this asset account that is then allocated to expense over straight-line basis
bond
this divides a large liability into many smaller liabilities (1k or 5k)
interest paid
this is the amount specified in the bond indenture; the stated rate times the face amount
mortgage bond
this kind of bond is backed by a lien on specified real estate owned by the issuer; less risky, so lower interest rate
zero coupon bond
this pays no interest, but offers a return in the form of a deep discount from the face amount
favorable financial leverage
this situation is when a company earns a return on borrowed funds in excess of the cost of borrowing the funds, and shareholders are provided with a total return greater than what could have been earned with equity funds alone
interest expense
this varies as the balance of the note changes over time
note payable
when a company borrows cash from a bank and signs a promissory note, the firm's liability is reported as:
early extinguishment of debt
when debt of any type is retired prior to its scheduled maturity date
private placement
when the issuing company choses to sell the debt securities directly to a single investor; issue costs are less
zero
whether bonds are issued at a premium or at a discount, the outstanding balance becomes __ at maturity
changes
if a company chooses the option to report at fair value, then it must report __ in fair value in the income statement
substance
in accounting, look beyond the form of the transaction and record its:
financing
borrowing is a(n) __ activity
installments
car and house notes usually call for payment in monthly _ rather than by a single amount at maturity
fair value
companies are not required to, but have the option to, record some or all of their financial assets and liabilities at their:
imputing
deciding what the appropriate rate should be for a note
more
discounts and premiums are __ likely for bonds as for notes
less
discounts and premiums are __ likely for notes as for bonds
subordinated debenture
exception to the equal rule; not entitled to receive any liquidation payments until the claims of the other specified debt issuances are satisfied
interest
for debt, __ is the effective interest rate times the amount of the debt outstanding during the interest period
changing debt balance
for the effective interest method, the dollar amounts of interest vary over the term to maturity because the percentage rate of interest remains constant but is applied to a:
straight line method
for this, the company determines interest indirectly by allocating a discount or a premium equally to each period over the term to maturity
investing
lending is a(n) __ activity
creditor
liabilities signify __'s interest in a company's assets
single amount
long term debt is usually reported in a __ __ net of discounts or premium, rather than at is face amount accompanied by a separate valuation account for the discount or premium
present values
long term liabilities are reported at their:
callable
most corporate bonds are this; allowing the issuing company to buy back outstanding bonds from bondholders before their scheduled maturity date
effective interest method
recording interest each period as the effective market rate of interest multiplied by the outstanding balance of the debt during the interest period